By Alan Hall | Excerpted from the November 2016 Socionomist
When times are good central bankers are heroes. The public lauds them for using interest rates to help the economy. In his 1999 book, The Wave Principle of Human Social Behavior, Robert Prechter called this “The ‘Potent Directors’ Presumption.” However, he noted that central banking authorities “never reverse a financial spiral, in either direction.” In the November 2016 issue of The Socionomist, Alan Hall uses the example of central bankers in Europe to reveal why this is true. Following are excerpts from Hall’s article:
The Socionomics Institute and Elliott Wave International have found that in the U.S. and Australia, the markets lead the central banks—not the reverse, as is commonly held. Now, we see that the same is true in Europe and in the U.K.
The June 2012 issue of The Socionomist featured an article titled “Social Mood is the Real Governor of the Federal Reserve.” The article demonstrates that social mood influences both the interest rates and the tone of the meetings of the Federal Open Market Committee (FOMC), a group within the Federal Reserve that meets eight times per year to “set the path of short-term interest rates over the next six to seven weeks.” At least that’s what the Fed’s website says the FOMC does.
But history shows that the 3-month U.S. T-Bill yield set by investors moves first, and the FOMC’s interest-rate changes follow. Chapter 19 of The Wave Principle of Human Social Behavior (1999) describes the result: “A socionomist monitoring the T-bill rate can predict with fair accuracy what the Fed will do. No one monitoring the Fed’s decisions can predict what T-bill rates will do.”
In the April 2009 issue of The Asian-Pacific Financial Forecast, Mark Galasiewski showed the same lagging relationship in Australia: 3-month Australian treasury bill rates move first, and the Reserve Bank of Australia’s rate changes follow. … The same dynamic prevails in the European Union and in the United Kingdom.
The top line in Figure 1 [not pictured] plots monthly data for the European Central Bank’s Main Refinancing Operations Rate, Europe’s equivalent to the U.S. Federal Funds Rate. The lower line plots monthly data for the interest rate of the freely-traded, 3-month Euro Generic Government Bond. Since 1999, the European Central Bank has lagged the freely traded bond market at all seven major turning points in rates. …
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